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Government goes on defensive after report finds talks with casino to build convention centre were flawed.

Officials in one of Prime Minister John Key's departments disregarded Treasury advice to seek guidance in how to conduct SkyCity talks with honesty and integrity.

The admission comes as the former chief executive of the Ngati Whatua Orakei Trust, which lost out to SkyCity in its bid to build a convention centre, says the trust should be refunded the money it wasted on a bid that was never seriously considered.

Prime Minister John Key and his ministers were yesterday forced to defend their role in negotiations with SkyCity in the wake of a report by independent watchdog the Auditor-General which found a series of flaws in the way proposals to build a national convention centre were sought and evaluated.

That process followed a series of meetings and dinners attended by Mr Key or his chief of staff Wayne Eagleson and SkyCity board members and executives.

During those meetings it was made clear that SkyCity was seeking Gambling Act changes that would allow it to increase pokie machine numbers. Mr Key also encouraged the casino operator to "think outside the box" in terms of what it wanted from the Government in return for building a large convention centre.

Mr Key yesterday told Parliament that initial stage of contact with SkyCity in which he or his department was involved between May 2009 and March 2010 "has 100 per cent tick-off from the Auditor-General".

However, the report notes that the Tourism Ministry, for which Mr Key has responsibility, was told by Treasury in November 2009 to seek advice from the Auditor-General "to determine the probity" of its discussions with the casino company.

"We have no record of any contact with ministry officials on this topic at this time," Deputy Auditor-General Phillipa Smith said in her report.

Ms Smith said she had concerns about officials' willingness to support discussions between SkyCity and ministers and their staff developing into more substantive negotiations, "without preparing to give advice on the Government's procedural obligations and options".

The Tourism Ministry now sits within the Ministry of Business Innovation and Employment (MBIE) and a spokeswoman yesterday confirmed that neither Tourism nor other officials running the subsequent Expression of Interest (EOI) process sought advice from the Office of the Auditor-General.

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She said that was because the proposal was not a conventional public private partnership.

Ms Smith's report also criticised the fact that officials were continuing to meet SkyCity to discuss its proposal and what Gambling Act changes it might seek during the EOI process. Former Ngati Whatua chief executive Tiwana Tibble yesterday confirmed there was no engagement by officials about Ngati Whatua's bid as they did with SkyCity.